Essay on Majestica Hotel in Shanghai

5231 Words Aug 1st, 2012 21 Pages
MAJESTICA HOTEL IN SHANGHAI?

On March 20, 2005, Richard Roy, executive vicepresident of Majestica Hotels Inc., was in China, for negotiations with Commercial Properties of Shanghai Limited (CPS). They were discussing a possible management contract under which Majestica would be the operator of a new luxury hotel there owned by Shanghai Industrial Holdings.
Majestica Hotels Inc. was one of the world’s leading operators of luxury hotels. The expansion into mainland China had been on management’s agenda since 1999. The opportunity emerged in late 2003 when a close friend of Majestica’s chief executive officer (CEO) revealed that CPS was looking for an operator for its new luxury hotel under construction in Shanghai. Majestica immediately
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While Majestica expanded quickly in North America, it adopted a gradual expansion strategy in Asia. This gradual expansion strategy shifted when the opportunity arose to acquire a major competitor in Asia in 1998. This acquisition made Majestica one of the world’s largest operators of luxury hotels and resort properties. More importantly, it provided Majestica with a much expanded position in Pacific Asia and an immediate presence in the greater China area. Majestica continued its international expansion by amassing a select portfolio of medium-sized luxury hotels in the world’s commercial and financial centres. By the end of 2004, Majestica managed 40 properties in 15 countries with approximately 20,000 employees. The contribution of Majestica’s properties in North America, Asia and Europe to its consolidated revenue was 54 per cent, 14 per cent and 32 per cent, respectively. Exhibit 1 provides a five-year review of the occupancy rate, average daily room rate (ADR) and average room revenue per available room (REVPAR) of Majestica hotels in these three regions and worldwide.
In 2004, Majestica had a market capitalization of $1.7 billion1 and generated revenue of more than $2.3 billion (see Exhibit 2). Majestica earned revenue both from hotel management and hotel ownership operations. In the past five years, Majestica shifted away from owning hotels and focused on managing hotels. In 2004, 80 per cent of Majestica’s earnings before other
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